Mutual Funds' exposure to software stocks at 3-month high

The mutual fund (MF) industry is betting big on software companies as its equity exposure to the sector rose to three-month high of Rs 18,430 crore at the end of June.

The MF industry's investment in software stocks stood at Rs 18,430 crore as on June 30, accounting for 10.21% of their total equity assets under management (AUM) of Rs 1.80 lakh crore, according to the Sebi data.

This was its highest exposure in software shares since March, when the total value of mutual fund investments in the sector stood at Rs 19,196 crore. March's figure also marked three-and-a-half year high exposure to the sector.

Market participants attributed MFs' inclination towards software segment to weakness in the Indian currency coupled with good performance by IT companies. A weak rupee boosts value of dollars earned by IT firms.

Of late, the Indian currency has been consistently hitting new record lows and it slumped to a life-time low of 61.80 (intra-day) against the US dollar yesterday. Since April 30, the rupee has depreciated by over 10%.

"The mutual fund industry have been investing in the software shares because of weakness in rupee and smart quarterly numbers posted by companies such as TCS, Infosys and Wipro among others," Geojit BNP Paribas Financial Services Research Head Alex Mathews said.

Another key factor was expectation of good order books from the US companies, he said.

Mutual fund is an investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets.

MFs had exposure of 19.53% to banking stocks in June 2013, which was the highest among all sectors. Besides, MFs exposure to the consumer non-durables stood at 7.79%, pharmaceuticals (7.56%) and non-banking financial services (5.93%).

In terms of absolute numbers, mutual funds investment to the banking space stood at Rs 18,430 crore, while pharma sector accounted for Rs 14,064 crore, consumer non-durables Rs 13,645 crore and non-banking finance Rs 10,708 crore.